Paychex sees slowdown in small business job and wage growth in October

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Paychex found a slight decline in the rate of growth in small jobs and wages in October, according to its latest monthly report.

The Paychex | IHS Markit Small Business Employment Watch, which the payroll giant compiles each month with the research firm IHS Markit, indicated a 0.04 percent decline in the Small Business Jobs Index to 99.89. After reaching a record growth rate of 3 percent in August, growth in hourly earnings has also slowed down slightly in the past two months. However, average hourly earnings in October reached $26.07, an increase of 2.91 percent (or $0.74) year-over-year.

“As far as job growth we’ve probably seen the most stable quarter in history, which I think means we’ve hit a moderate rate,” said Paychex president and CEO Martin Mucci. “We’ve hit a plateau, but it’s still positive because it’s more jobs. It’s just about half a percent less job growth than a year ago. With wages, we’re just under 3 percent over last year, so again it’s positive given that inflation is at 2 percent, but it has decelerated over the last quarter. The three-month average is around 2.6 percent, so it has slowed a little bit.”

Minimum wage increases in some locations at the beginning of next year may help increase wage growth slightly in January, he predicted.

At 100.58 the South was the only region of the country to improve in October in terms of small business employment growth, remaining the top-ranked region on the index for 18 consecutive months. However, the West region of the country declined a full percentage point from a year ago to 99.49. The number of hours worked in Houston, Miami and Tampa continue to be negatively affected by the damage from Hurricanes Harvey and Irma.

“The South is still showing the best index,” said Mucci. “It’s got the best level of job growth, even though the hours worked are still down because of the storms and hurricanes. Houston, Miami and Tampa are still showing lower hours worked than they were a few months ago, but we still think that will bounce back.”

After a significant slowdown in recent months, Georgia had the best one-month growth rate in employment among states in October, recovering some of the momentum it had at the beginning of the year. However, New Jersey has slowed to the 16th-ranked state for employment growth and is under 100 for the first time since October 2015.

In terms of employment growth among industries, the construction industry improved to 100.67 in October, the fourth month in a row. However, at 98.71, the professional and business services sector declined to the lowest-ranked industry in October, where manufacturing was for 31 consecutive months.

“In the South the best industries are leisure and hospitality and construction,” said Mucci. “Construction, both residential and commercial, seems to be doing well. Interestingly enough, manufacturing is not the lowest index for the first time in many years. It’s professional and business positions. Manufacturing has been at an all-time low, and it’s bounced back a little bit.”

Mucci anticipates that tax reform will be dominating many discussions between accountants and their small business clients. Republican leaders in Congress and the Trump administration are expected to unveil draft tax reform legislation on Wednesday.

“I think it’s going to keep CPAs very busy because it sounds like it’s going to be more drawn out as an approval process,” Mucci predicted. “Obviously an important component of tax reform will be the lowering of the rates for pass-through entities for small businesses. I’m not sure what’s going to happen there, but it looks like things are going to happen over time.”

Another important change for accountants and their small business clients will be the Internal Revenue Service’s recent announcement that it won’t process electronically filed tax returns next tax season without an indication of whether a taxpayer has health coverage (see IRS won't accept returns next year without health coverage).

“The IRS has announced that beginning with this filing year, they will not accept tax returns which lack the insurance information required by the Affordable Care Act,” said Mucci. “CPAs will be very busy making sure clients are aware of that and are working with the employers and insurance carriers to ensure that information is on hand so that their filings are not delayed.”

Accountants may also need to help small businesses deal with the enrollment period for Obamacare, as the federal government has cut back on resources and funding to help taxpayers sign up and make them aware of the deadlines.

“We’ll have to watch and see if it makes it more difficult to sign up or if they need support when signing up,” said Mucci. “Are the resources there for them? Will that delay them in signing up if the support isn’t there? It’s hard to tell where those budget impacts will hit, where it’s going to hurt, but you can probably expect that if you have questions where people need support, it may be more difficult for people to find it.”

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Payroll Small business Tax reform Healthcare reform Paychex